The Energy Accounts for The Nova Scotia Genuine Progress Index

Introduction: Energy and the GPI Framework

Energy is essential to all life on earth. Whether as nourishment to sustain individual organisms or as fossil fuels to run modern societies, every activity on earth is dependent on a constant, abundant, reliable source of energy. An interruption to modern energy supplies can have serious consequences for economy and society, jeopardizing current standards of living. But the intensive use of energy, especially that obtained from fossil fuels, is also the primary cause of a number of environmental, social, and economic concerns. Current energy production and consumption patterns have been linked to global climate change, local health impacts, and regional impacts such as air and water pollution, damage to marine and other wildlife, land-use conflicts, security implications, resource depletion, and soil contamination. Until recently however, attention has been given predominantly to developing new fossil fuel based energy sources and securing existing ones, with little regard for the health and environmental impacts these create. The benefits of abundant supply were considered to outweigh the social and environmental costs of maintaining that abundance. When those costs are included in the equation, as in this study, the current model is seen to be unsustainable.

The failure to count full benefits and costs, and thus to evaluate energy supply and demand accurately and comprehensively, stems largely from the fact that conventional economic theory sees the human economy as a closed system in which firms produce and households consume. That assumption is the basis for calculating the GDP and the economic growth rates on which we currently, and mistakenly, base our assessments of prosperity and social wellbeing. In addition to ignoring production of goods and services and capital items that traditionally have no market value, the conventional assumption is flawed in an even more fundamental way. The human economy is not a closed system. It exists as a sub-system within, and completely dependent upon, an encompassing ecosystem that provides vital life-support services to human society. The energy and matter that enter the human economy from the ecosystem also return to the ecosystem, partly as waste. The capacity of the ecosystem to absorb that waste in turn affects the functioning of the human economy. The conventional view that ignores the dynamic interaction between the human economy and the encompassing ecosystem on which the economy depends helps perpetuate our unsustainable energy system.

By contrast, the GPI accounts acknowledge the reality of that dynamic interaction and define wealth more broadly to include valuations of natural capital, social capital, and human capital in addition to the conventional produced capital. This report starts with physical indicators of progress towards a sustainable energy sector and examines trends over time to assess whether energy use is becoming more or less sustainable. An economic valuation of some of the full costs of energy use follows the presentation of these indicators; but the underlying physical indicators, rather than the economic valuation, provide the direct means to track progress. This is because environmental restoration measures such as greenhouse gas and pollutant reductions are defensive expenditures that may be interpreted either as compensation for past damage or as positive investments in natural capital. Measures of genuine progress therefore always rely on the underlying physical indicators on which the economic valuations are based.

While the GPI is being developed here as a macro-economic and social measurement instrument that can establish benchmarks of progress for Nova Scotia, the GPI method also has practical utility at the micro-policy or project level. Unlike conventional assessment tools that are not capable of factoring long-term social and environmental impacts into the cost-benefit equation, the GPI is based on “full-cost accounting” principles that are essential to promote optimal economic efficiency. At the micro-level, the GPI can therefore be used to evaluate program effectiveness in a more comprehensive way than conventional instruments that account only for market interactions. Thus, the methods outlined in this report can also be used to assess whether particular policies designed to implement the recommendations noted above and to move the province towards a more sustainable energy system are working or not.

GPI Energy Accounts

The GPI Energy Accounts are organized in nine chapters:

Chapter 1 provides an overview of the GPI approach as it applies to energy, examines sustainability principles, and defines sustainable energy.

Chapter 2 provides a snapshot of the current energy system in Nova Scotia.

Chapter 3 is an overview of the social, economic, and environmental impacts of energy use.

A discussion about indicators, indicator frameworks, and indicator selection criteria used in this report is contained in Chapter 4.

Chapters 5-7 provide detailed discussions and time series for some of the indicators identified in Chapter 4 and for some of the impacts discussed in Chapter 3, They also provide some information on additional economic and institutional aspects of energy use.

Using the data presented in Chapters 5-7, Chapter 8 provides estimates on the monetary costs of our current energy choices.

Chapter 9 is the most important chapter for policy makers and concerned citizens as we summarize the main findings of the report and make recommendations on three levels: first, how to improve and expand this report on genuine progress in the energy sector in the future; second, to identify where more research is needed and where new data need to be collected in order to track sustainability in the energy sector more effectively; and third, to point towards policy actions that can achieve greater energy sustainability.

The term energy in this report refers principally to the power used by Nova Scotian society for electricity, heat, and industrial processes. Transportation is also a fundamental component of the energy sector but is not discussed extensively in this report, as it has been presented separately in the GPIAtlantic Transportation Accounts.

Energy Overview

As in most parts of the world, energy demand in Nova Scotia is heavily dependent on fossil fuels. Almost 70% of demand in the province is for oil products while electricity (mostly from coal) accounts for 21%. Some indigenous resources are used here, such as biomass for heating and hydro for electricity, but these amount to less than 10% of final demand. All of the province’s oil is imported and only a small portion of the province’s electricity is generated with domestic fuels. Although the province has some natural gas reserves that have been tapped since 1999, production has been in decline for the past three years and only a small fraction of the gas is used domestically. Domestic coal production declined substantially in the 1990s and amounted to only 32 kilotonnes in 2003. Imported coal is the dominant fuel used to generate electricity, representing about 75% of the fuel mix in 2001. While significant domestic coal reserves remain, these are not currently being extracted, primarily for economic reasons. In addition, the damage to land, water, and air from coal extraction and combustion make this an undesirable fuel from an environmental point of view.

Currently about 9% of electricity in the province is generated from renewable energy sources mainly hydro and tidal power and more recently some wind. Hydro power is not expected to expand significantly because the best sites have already been used. Nova Scotia’s geography and climate provide a favourable wind regime. However, wind only produces a fraction of a percent of the province’s primary energy. Similarly, geo-thermal and solar energy remains untapped with only a handful of mine-water systems in the Springhill area, some residential heat-pumps, and a few homes and businesses using solar applications. Wood provides heat for an estimated 100,000 homes in Nova Scotia while a number of large industrial and institutional facilities use wood for heating and energy needs.

End use demand is attributable to (in descending order) the transportation, residential, industrial, commercial, public administration, and agricultural sectors. Energy demand in Nova Scotia declined rapidly in the early 1980s due to the 1970s oil crises. The fact that energy use levels in Nova Scotia have remained below the highs of the 1970s is a positive indicator from the perspective of sustainability. However, since 1991 end use energy demand has increased 10%. Although data are suppressed for the total amount of energy used in the province, it appears that at the current per capita energy use level, Nova Scotians are among the highest energy users in the world, well above the average for OECD nations.

The current dependence on non-renewable and polluting fossil fuels in Nova Scotia indicates a highly unsustainable energy system. Sustainable energy is defined in this report as an energy system that provides “adequate energy services for satisfying basic human needs, improving social welfare and achieving economic development throughout the world without endangering the quality of life of current and future generations of humans or other species.” In addition, a sustainable energy system is one based on replenishable resources with a minimised waste stream that does not exhaust the absorptive capacity of the biosphere. In general, a sustainable energy system includes the following components:

Reducing demand for and dependence on conventional energy supplies (i.e. fossil fuels and nuclear energy) through changes in consumption patterns, including changes in individual, household and social behaviour and more efficient use of energy;

A greater reliance on renewable sources of energy;

Using cleaner sources of conventional energy, such as natural gas, as a bridging fuel and developing ways to reduce the impact of more polluting sources.

From the perspective of the principles of sustainability and particularly of inter-generational equity outlined in this report, it is clearly not ideal to rely on non-renewable energy sources to any extent, as current consumption habits are ipso facto denying future generations a source of cheap energy and a feedstock for a host of products. However, a “cold turkey” switch to complete reliance on renewable energy sources is also not possible or realistic. Therefore, the key mark of a sustainable energy system in the present, which honours the principle of intergenerational equity, is the continued use of non-renewable energy supplies at such a rate as allows their gradual replacement by affordable and renewable alternatives.